Alarmed by the rising jobless rate, Democrats are scrambling to “do something” to create jobs. You may have thought that was supposed to be the point of February’s $780 billion stimulus plan, and indeed it was. White House economists Christina Romer and Jared Bernstein estimated at the time that the spending blowout would keep the jobless rate below 8%.
The nearby chart [ed. click for a larger image] compares the job estimates the two economists used to help sell the stimulus to the American public to the actual jobless rate so far this year. The current rate is 9.8% and is expected to rise or stay high well into the election year of 2010. Rarely in politics do we get such a clear and rapid illustration of a policy failure.
The Wall Street Journal article quoted above goes on to advocate using the several hundred billion dollars still unspent from the stimulus package passed earlier this year to a reduction in the payroll tax, the tax that goes to support the Social Security program.
Advocates for the stimulus package or even for a second stimulus package continue to imagine a perfectly constructed stimulus package administered perfectly and disbursed perfectly with completely efficient results. You might think that the legislation that was actually enacted into law and the foreseeable consequences might deter them but that hasn’t been the case.
The editors of the Wall Street Journal are equally in Cloud Cuckoo Land. Whether we spend money we don’t have on payroll tax cuts or the preferred projects of powerful Congressmen and interests may not matter a great deal. Both add to the deficit and portend future borrowing.
What are the implications of that borrowing? See here:
As of Sept. 30, 2009, the national debt was almost $12 trillion and interest on that debt was $383 billion for the year, according to the Treasury Department’s Bureau of the Public Debt. The Congressional Budget Office on Oct. 7 estimated the 2009 budget deficit to be almost $1.4 trillion (about 10% of GDP). In August, the White House Office of Management and Budget (OMB) estimated total government revenues at about $2 trillion. The revenue estimate included $904 billion from individual income taxes. This means the cost of interest on the debt represented more than 40 cents of every dollar that came in from individual income taxes.
The emphasis is mine. Higher interest payments means less spending, higher taxes, or more borrowing. And more borrowing means higher interest payments yet.
With decreased revenues as a consequence of a reduction in the payroll tax, the Social Security Trust Fund will be in even greater imbalance than it already is. Additionally, such a cut is political anathema for Democrats, at least when the revenues from FICA are less than the outlays from Social Security.
I can only think of one way of helping businesses and in turn creating jobs that doesn’t drive us further into debt and isn’t a poison pill for either party: regulatory reform. Our byzantine, multi-layered, and cumbersome regulatory process, unevenly and unforeseeably enforced is one of the great disincentives to starting businesses and keeping them running once started. Unfortunately, from what I can see 660 miles west of the Potomac, things are moving in the opposite direction.